A BDO study of onshore wind sector deals suggests that operational projects can realise around €1.6m for each megawatt of output capacity.

A study of onshore wind sector transactions within the thirty-month period between January 2010 and June 2012, by BDO LLP, has found that the average value achieved, per MW of output capacity, was around €300,000 for wind farms acquired whilst under construction; €1.6 million for wind farms already in operation; and €60,000 per MW for projects in the pre-construction stage. The analysis covered acquisition data for wind projects in regions with varying levels of regulatory support: the United Kingdom, Germany, France, Spain, Italy, Ireland, Sweden, Greece and Austria – and drew relationships between the output capacity, enterprise value of the wind farm and the stage of development.

The authors, Tomas Freyman and David Stears of the BDO Valuations team, emphasise that renewable energy projects should principally be valued using an income approach, where careful consideration must be applied to assumptions concerning power prices, regulatory regime, capital expenditure, grid connection, feedstock prices (if relevant), operating costs and appropriate cost of capital, amongst other factors. They observe that the approach adopted for the purposes of their study, a market approach based on comparable company and transaction multiples, such as EV/MW, provides a useful cross-check – but stress that careful attention must be applied to the stage of development.

Freyman and Stears note that certain strategic assets, such as the location of the project and planning permission rights, do not appear to be particularly significant drivers of value – at least not until effective output capacity can be proven once the site is fully operational. They acknowledge that, for wind farms under construction, the available data rarely provides significant information as to the stage of development. They also point out that few transactions relate to wind projects in the later stages of development, as costs to completion fall and the developers get closer to being able to prove the efficiency of the site.

There are many different factors generating returns for onshore wind projects, all of which play an interconnecting part as drivers of value, according to the authors. In addition to obvious factors such as regulatory regime, turbine efficiency and wind speed, the return that investors can expect to generate will be driven by planning costs, grid connection, turbine costs and operating and maintenance costs.

According to the BDO study, within Western Europe merger and acquisition (M&A) activity is strongest in Spain, the UK, France and Germany. The report shows that, in Spain, at least €1.6 billion changed hands in M&A transactions of onshore wind farms over the thirty-month period to June 2012. There were transactions in excess of €750 million in each of the UK, France and Germany over the same period. In each of these countries, the average transaction enterprise value was in excess of €30 million.

Whilst the size of the transactions varied widely, BDO notes that there is appetite for large scale deals. The largest single transaction included in the report was the 2011 acquisition, by Bridgepoint Capital, of eleven operational wind farms with capacity of 443MW, in Spain, for €597 million. In the same year, ERG SpA acquired five wind farms in Italy for €100 million; whilst Hg Capital Plc sold three operational farms in the UK for €187 million in 2012.

Western European Onshore Wind Project Valuations

Project Stage

Average enterprise value per MW (€)

Pre-construction

60,000

Under construction

300,000

Operational

1,600,0

For further information and the full report contact:

Tomas FreymanDirector, Valuations +44 (0) 20 7893 2748
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David StearsManager, Valuations+44 (0) 20 7893 3016
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